If A Covid-19 outbreak in China forced a shutdown of Apple’s largest iPhone factory in November, the most valuable company in the world warned investors about falling sales. The question was: how much?
On Thursday, Apple reported that revenue fell 5 percent to $117.15 billion during the three months ended in December, the company’s first quarterly revenue decline since before the pandemic. Profits fell 13 percent to $30 billion.
Apple’s results are the latest evidence of the challenges facing the tech industry. After double-digit sales gains during the early pandemic, companies have recently switched to cost-cutting and mass layoffs, with Microsoft, Amazon and Alphabet – Google’s parent company – each cutting at least 10,000 jobs.
A less severe whiplash hit Apple. From 2020 to 2022, the company increased its annual sales by nearly $125 billion. But demand for iPhones, iPads, and Macs has slowed, which has left investors angry at the company. Over the course of a year, Apple lost $1 trillion in market value, a stunning turnaround for the only US company to ever reach a $3 trillion valuation.
Shares of the company fell about 4 percent in after-hours trading, reversing most of gains from earlier in the day as tech stocks rose after Meta’s earnings report on Wednesday. Wall Street had expected sales of $122 billion and earnings of $31 billion.
Though business has slowed, Apple has done nothing to cut jobs. Unlike some of its peers like Google and Meta, which aggressively hired staff in the early years of the pandemic to keep up with demand, Apple stayed disciplined, hiring 24,000 new employees, just 3,000 more than in the three years leading up to 2020 .
Still, many investors have reduced their stakes in Apple out of concern that the business will be hit by the slowing economy. Consumer spending in the United States, Apple’s largest market, has declined, posing a potential challenge for selling expensive iPhones.
“It’s affecting end-user spending propensity, and it’s going to impact the world’s most valuable company,” said Dave Wagner, portfolio manager at Aptus Capital Advisors, which has about $5 billion under management and invested in Apple.
Apple reported iPhone sales of $65.78 billion 8 percent less than last year. The modest drop demonstrated the company’s acumen in the supply chain. After the company closed its largest iPhone factory in November, it shifted some production to other factories, according to Counterpoint, a market research firm.
On the sales front, Apple benefited from more iPhone buyers opting for the more expensive Pro models, which pushed the average selling price up 9 percent to $936, according to Counterpoint.
Apple compensated for its iPhone struggles with increasing sales of its iPads and services. The company announced that its iPad business brought in $9.4 Billions in sales, an increase of 30 percent. It grew revenue from apps and subscription services like Apple Music to $20.77 billion, about 6 percent year over year.
The company’s main challenge remains its concentrated supply chain in China. The faltering in US-China relations has accelerated, and Congress this year created a special committee to assess competition with Beijing. Concerns are also mounting in Washington China could soon take military action against Taiwan.
Amid rising tensions Apple has shifted production from China to Vietnam and India. But much of its sales continue to come from products made in China. And Chinese consumers account for about a fifth of total sales.
In December, sales in China fell 7 percent to $23.9 billion. Apple’s business there should improve in the current period as China’s economy reopens after years of strict Covid-19 restrictions. Analysts are assuming that sales will fall by around 4 percent in the current quarter.
